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Chapter 3
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1Copyright ©2011 by Cengage Learning. All rights reserved
Designed & Prepared byB-books, Ltd.
MGMT3
Chuck Williams
Chapter 3Organizational Environments
and Cultures
2Copyright ©2011 by Cengage Learning. All rights reserved
External Environments
After reading the next four sections, you should be able to:
1. discuss how changing environments affect organizations.
2. describe the four components of the general environment.
3. explain the five components of the specific environment
4. describe the process that companies use to make sense of their changing environments.
3Copyright ©2011 by Cengage Learning. All rights reserved
Changing Environments
Environmental Change
Environmental Complexity
Resource Scarcity
Uncertainty
Environmental Change
Environmental Complexity
Resource Scarcity
Uncertainty
Characteristics ofChanging External Environments
11 © keko64/Shutterstock
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Chapter 3
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Environmental Change
Environmental Change is the rate at which a company’s general and specific environments change
� stable environments� dynamic environments
Punctuated equilibrium theory
Companies cycle through stable and dynamic environments.
1.11.1
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Environmental Complexity
Environmental Complexity: the number of external factors in the environment that affect organizations
Simple environments Complex environments
1.21.2
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Resource Scarcity
Resource Scarcity
The abundance or shortage of critical organizational resources in an organization’s external environment.
1.31.3
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Beyond the BookAn Oncoming Diamond Shortage?• After years of buying most of their diamonds pre-cut and pre-polished, Tiffany’s and many other diamond retailers began to fear oncoming supply shortages.
• Tiffany has invested in mine operators and opened cutting-and-polishing plants in several countries.
• Controlling all steps in the supply chain would require broad expertise to successfully manage.
• With diamonds representing 47% of Tiffany’s sales, the company believes maintaining its pipeline is worth the risk.
Source: V. O’Connell, “Diamond Industry Makeover Sends Fifth Avenue to Africa”, The Wall Street Journal, 26 October 2009. http://online.wsj.com/article/SB125650986946206903.html?mod=WSJ_hps_RIGHTTopCarousel (accessed 10/26/2009).
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Uncertainty
1.41.4
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External Environment
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Components of the General Environment
• Economy
• Technological trends
• Sociocultural trends
• Political / Legal trends
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Economy
• Growing vs. shrinking economies
• Predicting future economic activity
• Business confidence indices
2.12.1
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Technological Component
InformationInformation
OutputOutputInputInputTechnology
KnowledgeTools
Techniques
TechnologyKnowledge
ToolsTechniques
Raw Materials
Raw Materials
ServicesServices
ProductsProducts
2.22.2
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Sociocultural Component
– Demographic changes
– Changes in behavior, attitudes, and beliefs
2.32.3
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Demographics Example
2.32.3
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Political / Legal Component
• Legislation• Regulations• Court decisions
Managers must be educated about the laws, regulations, and potential lawsuits that
could affect business
http://www.eeoc.gov/abouteeo/overview_laws.htmlhttp://www.dol.gov/esa/whd/fmla/Web Link
2.42.4
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Specific Environment
CustomerCustomer
CompetitorCompetitor
SupplierSupplier
Industry RegulationIndustry Regulation
Advocacy GroupAdvocacy Group
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Customer Component
Reactive customer monitoring– responding to problems,
trends, and events
Proactive customer monitoring– anticipating problems,
trends, and events
Monitoring customer wants and needs
is critical for business success
3.13.1
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Competitor Component
Competitive AnalysisCompetitive Analysis
Deciding who your competitors areDeciding who your competitors are
Anticipating competitors’ movesAnticipating competitors’ moves
Determining competitors’strengths and weaknessesDetermining competitors’strengths and weaknesses
3.23.2
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Chapter 3
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Beyond the BookPushing in on Google’s Search SpaceGoogle currently holds 70.2% of the search market. Google’s most substantial competition could come from a combined effort from Yahoo and Microsoft’s Bing, which could garner as much as 27% of the market. Microblogger Twitter recently added a search function. OneRiot provides real-time search of current news and Twitter posts. Wolfram Alpha, Aardvark, ChaCha, and Mahalo are among services designed to provide concrete answers to factual queries. While none of these sites command anywhere near the market space that Yahoo and Bing do, Google must still account for them in its competitive environment.
Source: R.D. Hoff, “Can Google Stay on Top of the Web”, Business Week, 12 October 2009. 44-49.
20Copyright ©2011 by Cengage Learning. All rights reserved
Supplier Component
Opportunistic BehaviorOpportunistic Behavior
SuppliersSuppliersBuyer Dependence
Buyer Dependence
Supplier Dependence
Supplier Dependence
Relationship BehaviorRelationship Behavior
3.33.3
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Industry Regulation Component
Industry Regulation
Regulations and rules that govern the business practices and procedures of specific industries, businesses, and professions
3.43.4
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Chapter 3
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Federal Regulation Agencies
Consumer Product Safety Commission
Consumer Product Safety Commission http://www.cpsc.govhttp://www.cpsc.gov
Department of LaborDepartment of Labor http://www.dol.govhttp://www.dol.gov
Environmental Protection AgencyEnvironmental Protection Agency http://www.epa.govhttp://www.epa.gov
Equal EmploymentOpportunity Commission
Equal EmploymentOpportunity Commission http://www.eeoc.govhttp://www.eeoc.gov
Federal Communications Commission
Federal Communications Commission http://www.fcc.govhttp://www.fcc.gov
Federal Reserve SystemFederal Reserve System http://www.federalreserve.govhttp://www.federalreserve.gov
Federal Trade CommissionFederal Trade Commission http://www.ftc.govhttp://www.ftc.gov
Food and Drug AdministrationFood and Drug Administration http://www.fda.govhttp://www.fda.gov
National Labor Relations BoardNational Labor Relations Board http://www. nlrb.govhttp://www. nlrb.gov
Occupational Safety andHealth Administration
Occupational Safety andHealth Administration http://www.osha.govhttp://www.osha.gov
Securities and ExchangeCommission
Securities and ExchangeCommission http://www.sec.govhttp://www.sec.gov
3.43.4
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Cost of Compliance
Researchers studied U.S. manufacturers and the costs they incur complying with the 25 major federal regulations. They found:
• There are about 300,000 manufacturing companies in the U.S.
• Each company spends roughly $2.2 million
So, the aggregate cost of complying with federal regulations is roughly
$660 billionAnd that’s just for manufacturing.
24Copyright ©2011 by Cengage Learning. All rights reserved
Advocacy Groups
Advocacy Groups
� Groups of concerned citizens who band together to try to influence the business practices of specific industries, businesses, and professions
� Techniques to try to influence companies� public communications
� media advocacy
� product boycotts
3.53.5
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Advocacy Groups
PETA is a well-known advocacy group that attempts to influence consumers and companies to
pursue animal-friendly practices.
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Beyond the BookCompeting Interests in the Utility SectorThe issue of cleaning up carbon emissions has brought new complications to the utility sector. Consider:
• Environmentalists are calling for greener energy.
• The government is working to pass new climate legislation that will reduce the effects of dirtier fuels like coal.
• Energy companies using cleaner fuels think the utilities that use the dirtier fuels (like coal) should foot the bill.
• The coal utilities counter that government policy has pushed them toward coal since the 1970s, when the country was trying to findalternatives to oil.
• All of the utilities must consider how the customer will respond to rising energy bills.Source: J. Carey, “The Clash Over Clean Power”, Business Week, 12 October 2009. 55-58.
27Copyright ©2011 by Cengage Learning. All rights reserved
Making Sense of Changing Environments
Acting on Threats and Opportunities
Acting on Threats and Opportunities
Interpreting Environmental Factors
Interpreting Environmental Factors
Environmental Scanning
Environmental Scanning
EvaluatingExternal
Environments
EvaluatingEvaluatingExternalExternal
EnvironmentsEnvironments
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Environmental Scanning
Searching the environment for events or issues that might affect an organization
�keeps companies current on industry factors
�reduces uncertainty
�alters organizational strategies
�contributes to organizational performance4.14.1
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Interpreting Environmental Factors
EnvironmentalScan
EnvironmentalEnvironmentalScanScan
Opportunities?Opportunities? Threats?Threats?
4.24.2
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Acting on Threats and Opportunities
Cognitive Maps
� simplified models of external environments
� depicts how managers believe environmental factors relate to possible organizational actions
4.34.3
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Cognitive Maps
4.34.3
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Internal Environments
After reading this section, you should be able to:
5. explain how organizational cultures are created and how they can help companies be successful.
33Copyright ©2011 by Cengage Learning. All rights reserved
Internal Environments
Internal Environment
The events and trends inside an organization that affect management, employees, and organizational culture.
� important because it affects what people think, feel, and do at work
� organizational culture is the set of key values, beliefs, and attitudes shared by organizational members
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Beyond the Book
A Culture of InnovationHow does a company like Genentech keep producing revolutionary breakthroughs in pharmaceuticals? Genentech puts special emphasis on fostering a culture of innovation, where employees are encouraged to take risks and pursue areas of interest. Genentech is the only pharmaceutical company to offer a postdoctoral program. One of the advantages of this program is that it constantly attracts younger people with a broad range of backgrounds and interests, which helps foster a spirit of creativity and entrepreneurship and keeps new ideas flowing through the company. Genentech employees are encouraged to pursue ideas in areas that they are interested, even when those ideas might not pan out.
Source: C. Tkaczyk, “Encouraging Innovation”, Fortune, 12 October 2009. 22.
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Creation and Maintenance of Organizational Cultures
Organizational HeroesOrganizational HeroesOrganizational StoriesOrganizational Stories
Company FounderCompany Founder
5.15.1
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Successful Organizational Cultures
EmployeeSatisfactionEmployee
Satisfaction
QualityQuality
ConsistencyConsistency
AdaptabilityAdaptability
InvolvementInvolvement
Clear VisionClear Vision
SalesGrowthSales
GrowthReturn on
AssetsReturn on
AssetsProfitsProfits
Source: D.R. Denison and A.K. Mishra, Organization Science 6 (1995): 204-223
5.25.2
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Levels of Organizational Culture
5.35.3
©Th
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tock
/Jup
iter
Imag
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Changing Organizational Cultures
• Behavioral addition – is the process of having managers and employees
perform a new behavior.• Behavioral substitution– is having managers and employees perform a new
behavior in place of another behavior.• Change visible artifacts– such as the office design and layout, company
dress codes, etc.
5.35.3
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Beyond the BookTransforming a CultureNew CEO Diana Dykstra transformed the San Francisco Fire Credit Union from a culture crippled by policy into a place where employees are empowered to meet customer needs. Dykstra replaced the 1,000 page employee manual with four core values which define the company’s direction and culture. Now all decisions are measured against these values. Employees send stories to Dykstra of coworkers going the extra mile for customers, and the best ones are rewarded each month.
Source: M. D’Antonio, “Don’t Get Paralyzed by Company Policies,” 1to1 Magazine, 2 June 2009.